OESA News 2019 2Q Edition 3

NEWS

Original Equipment Suppliers Association

2019 Second Quarter │ Edition 3

Championing the business interests of automotive suppliers IN THIS ISSUE...

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The Suppliers' Voice Supplier Barometer Guest Column: RSM Technology Update

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OESA Events Guest Column: Entrada Guest Column: McKinsey & Company Guest Column: Conway McKenzie

This edition is sponsored by:

19 Welcome New Members 22 Council Feature: ELC 23 Calendar of Events

Mexico, Delivered

Why Mexico Needs More Proven Auto Suppliers New whitepaper explores why the shortcomings of Mexico’s automotive supply base are leading to growth opportunities for small-to-midsized suppliers. ine of the top ten global automakers now manufacture light vehicles in Mexico, which is the world’s seventh-largest producer in that category. Mexico cranks out nearly 4 million cars annually, with year over year growth to rival the world’s most proven producing nations. Yet, Mexico’s supply base, particularly beneath the Tier One level, needs help.

For Mexico’s auto sector to continue to grow, more international auto suppliers are desperately needed to fill the most glaring gaps. Download our whitepaper to learn why these shortages equate to opportunities for auto suppliers contemplating their first Mexico operation.

About Entrada Group

90% 23%

of auto manufacturers in Mexico say a strong supply base is very important rate the quality of the local supply base as poor Source: Entrada Group 2016 survey of 100 auto manufacturers with Mexico operations.

Download whitepaper today to learn: • Which auto sector processes are most in demand in Mexico • About changes in the new USMCA trade pact that may affect the auto sector • Best practices and options EM O for launching an initial to ico! u s a Mex operation in e lud p of c Mexico In ma

Download at:

www.entradagroup.com/OESA

Entrada Group guides international manufacturers in establishing an running their own Mexico production, in order to enhance global competitiveness.

Contact: Doug Donahue • Ph. 210-828-8300 • E: ddonahue@entradagroup.com 1 │ OESA News - 2019 Second Quarter

Voice

SUPPLIERS' VOICE

The Suppliers’

2019 Annual Member Feedback Drives New Strategic Priorities The OESA Annual Member Feedback Survey continues to be an important method to gauge the needs of OESA members and their overall satisfaction with the Association. We take member feedback seriously and use it to drive strategic direction and improve member engagement.

Julie A. Fream

Overall, the 2019 Member Survey feedback was positive; the most positive feedback is in the following categories: •

Advancing the business interests of the supplier community (rated 8.1 out of 10)

The mission of OESA is to champion the business interests of the automotive supplier community throughout the supply chain; everything we do supports that mission.

•

OESA staff responsiveness (rated 6.5 out of 7)

The OESA team is dedicated to providing quality customer service and works to address the needs of the automotive supplier community each and every day.

Results of the survey also indicate OESA is successfully addressing the needs of members in government advocacy (rated 5.7 out of 7). Together with the MEMA Washington, D.C. office, OESA is ensuring the supplier voice is heard on Capitol Hill and the state level. As the industry evolves, so do the needs of suppliers – and the work of OESA. Based on member feedback, OESA is incorporating the following in our strategic priorities: •

Foster stronger supplier/OEM and supplier/supplier relationships

•

Increase member awareness of MEMA advocacy activities that directly support supplier concerns in Washington, D.C.

•

Integrate new technology and mobility suppliers as part of OESA membership

OESA Members continue to rank the following as the most valuable aspects of OESA Membership: •

OEM Town Halls

•

Networking

•

Industry Trends/ Benchmarking/Best Practices

•

Peer Group Councils

Thank you to everyone who participated in the OESA Annual Membership Survey.

We appreciate your feedback on how to improve OESA for all members.

As always, please feel free to contact me any time at 248.430.5963 or jfream@oesa.org.

Julie A. Fream President and CEO OESA

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SUPPLIER BAROMETER

OESA Supplier Barometer: Concerns Persist Over Trade and Market Turbulence Mike Jackson Executive Director, Strategy and Research 248.430.5954 │ mjackson@oesa.org

According to the 2Q 2019 OESA Automotive Supplier Barometer Index (SBI) – a gauge to measure the sentiments of North American automotive supplier executives – supplier pessimism continues to weigh upon the automotive supply base. Results posted a negative reading of 35 for the period; 15 points below a neutral reading of 50. For the second straight quarter, the SBI is at its lowest level since 2Q 2009.

The high degree of pessimism is attributed to accelerating trade tensions and the market shift in passenger car sales. Survey sampling was conducted in mid-May during the escalating US-China trade discussions.

The reading is a dramatic shift in sentiment compared to 1Q 2018, when U.S. tax reform fueled robust optimism.

The 2Q 2019 OESA Supplier Barometer, sponsored by RSM US LLP, focused on Capital Markets & Innovation. The results indicate: • • • •

Trade policy remains the greatest industry threat to automotive suppliers In a ranking of concerns, the risk of tariffs under Section 232 on autos and auto parts is the greatest policy threat North America ranks second in planned long-term capital expenditure investment, outpaced by Asia Product innovation investment and merger & acquisition opportunities are the top two strategic priorities for the supplier community

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SUPPLIER BAROMETER

"Leading suppliers continue to demonstrate greater focus and flexibility while using varied capital approaches to advance their innovation strategies,� said Mike Jackson, executive director, strategy and research, OESA. Results highlight that over 70% of respondents affirmed that their capital planning process helps them achieve innovation objectives by leveraging external partners.

The 2Q SBI chart and a full copy of the Supplier Barometer results are available on the OESA website at: https://www.oesa.org/resource/oesa-automotive-barometer-studies.

RSM US LLP commentary on the 2Q 2019 OESA Supplier Barometer results can be found on page 5.

About the OESA Automotive Supplier Barometer: The OESA Automotive Supplier Barometer captures the pulse and analyzes the twelve-month business sentiments of top executives in the supplier industry. It is a quarterly survey on commercial issues, the business environment and strategies that influence the supplier industry. This Barometer is distributed to vehicle manufacturers, financial institutions, governmental officials and the media to provide an on-going profile of supplier industry trends.

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GUEST COLUMN

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TECHNOLOGY UPDATE

Two Very Different Approaches to Vehicle Automation Brian Daugherty Chief Technology Officer - MEMA 248.430.5966 │ bdaugherty@mema.org

I recently had the opportunity to meet with two well-funded automated vehicle (AV) companies in the San Francisco Bay Area – Embark Trucks and Zoox. Both companies are working toward the goal of SAE level 4 automation – a driverless vehicle in which the passengers never need to suddenly take over control, but one that is limited regarding the driving environment and the conditions that it can handle. A level 4 vehicle does not require a human fallback driver when the automated driving system (ADS) is engaged, allowing the driver to do non-driving tasks. When a level 4 AV is in automated mode, it will need to be able to reach a safe condition in a safe location on its own if a problem or failure occurs. As we have seen with the recent Uber and Tesla accidents, the need for a potentially distracted driver to rapidly take over control of an AV can be a problem.

Studies have shown that it can take up to 8 seconds for a distracted driver to regain situational awareness.

The National Highway Traffic Safety Administration (NHTSA) describes the set of limitations where an AV can operate as the Operational Design Domain or ODD. The ODD can limit operation to specific roads, roadway types, or geofenced areas and also specify other factors such as maximum speed, time of day, allowable weather conditions, and even the minimum quality of roadway markings. With some level 4 AVs, depending on the design, the driver could still operate the vehicle manually when it is outside of the ODD and the ADS is not operating. This could occur, for example, if the weather conditions changed suddenly and the AV had to safely pull over and stop. A passenger could then become the driver and resume the journey.

These two companies are taking very different approaches and illustrate the wide range of vehicle level 4 automation possibilities – all with the goal of providing safer, lower cost transportation.

The first company, Embark Trucks, is on a multi-year mission to automate trucking on interstate highways in an on-ramp to exit fashion. It plans to focus on one highway and implement everything needed to successfully navigate that particular route with a level 4 automated truck, operating in good weather conditions. It is starting with the US Interstate 10 corridor between Los Angeles and Dallas – one of the better weather, long distance roads in the country. The corridor also has consistent lane markings, limited on and off ramps, and relatively predictable traffic. Restricting operation to interstate highways significantly reduces the complexity of the automation challenges that need to be solved. Embark is currently selecting the sensor suite and developing the software to integrate its systems onto class 8 trucks, and envisions several more years of additional development. By starting with an initial goal of automating one highway, Embark is enhancing its chances of success.

Two of Embark’s test trucks.

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Photo: Brian Daugherty, MEMA

TECHNOLOGY UPDATE Zoox is focused on developing an SAE level 4, driverless, all-electric, urban robo-taxi service along with the accompanying ride-hailing phone app, and is currently building its sixth-generation AV prototype. It is also ambitiously planning to be the vehicle OEM, app developer, ride-hailing service operator, and maintenance provider – a true end-to-end operation. The company's goal is to have a pod style, bi-directional robo-taxi (with no steering wheel or pedals) that would operate as a service in urban areas similar to Uber or Lyft.

With no driver controls, the Zoox AV will need to robustly handle all the situations that it encounters since it could not pull over and let a driver take over. Zoox's automation challenge is significant since urban areas are very complex environments. Zoox realizes this and is tackling it head on with a massive, well-funded effort. Last summer, Zoox received $500M in additional funding on top of its previous $300M and has built an impressive organization with more than 600 employees.

Embark’s office and development space in San Francisco.

Photo: Brian Daugherty, MEMA

Embark and Zoox are approaching level 4 AV development with two very different, well-funded efforts. The US averages approximately one roadway fatality per 90 million vehicle miles traveled which – as poorly as we perceive human drivers to be – is a fairly high bar for automated vehicles to surpass.

As drivers, we know how complex the road environment can be at times and no one knows for sure if or when these projects will succeed in a commercial manner. It will be interesting to follow both companies as they move forward toward their goals of safer, lower cost transportation.

Contact Brian Daugherty to learn more about new vehicle technology and its impact on the industry. He can also share information about the quarterly OESA Mobility Supplier Forums held in Silicon Valley, and the OESA Advanced Technology Council. Both are designed to keep the industry abreast of new vehicle technology.

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OESA EVENTS

OESA 2019 2Q Mobility Supplier Forum | June 6 The Original Equipment Suppliers Association (OESA) will host the 2Q 2019 “Mobility Supplier Forum” on June 6, 2019, at Prospect SV in San Jose, California. This automotive forum meets quarterly in California’s “Silicon Valley” to help automotive suppliers advance their business interests in connected and transformative technologies. Each meeting features insights from leading industry experts on issues of common concern for automotive suppliers.

The meeting will feature Dennis Liu, associate director - global strategy & business development, Palo Alto Research and Innovation Center at Ford Motor Company, who will share Ford’s own journey as an automotive OEM evolving to compete in a new mobility landscape by harnessing the disruption and innovation driven by Silicon Valley, startups and venture capital investments.

In addition, Daron Gifford, partner, Plante Moran, will explain the impact of disruptive vehicle technologies on the industry, identify how these technologies will change manufacturing strategies and offer a general framework to compete in the quickly-evolving automotive industry.

Joshua Walker, chief product officer for intellectual property solutions, Aon, will discuss how an innovative intellectual property (IP) strategy, coupled with creative IP insurance products, can help create, preserve and enhance enterprise value for stakeholders in the auto industry.

Automotive suppliers looking for insight into the latest in automotive technology and tech companies exploring entrance into the automotive industry are encouraged to attend these forums.

Supporting Sponsors:

The remaining dates for the 2019 OESA “Mobility Supplier Forum” meetings are: • June 6, 2019 • September 5, 2019 • November 21, 2019

Webinar: Why a Mexican Production Footprint Will Grow Your Business | June 6 Nine of the top ten global automakers manufacture cars and light trucks in Mexico, which is the world’s seventh largest light vehicle producer. Yet, Mexico’s supply base, particularly below the Tier 1 level, needs help. Quality and reliability are uneven, a shortage of common key production processes persist, and importation and external expertise are still required.

These shortcomings represent tremendous opportunity for U.S. auto suppliers contemplating their first Mexico manufacturing footprint. Join OESA and Doug Donahue, principal and V.P. of business development, Entrada Group, on June 6, 2019, for a webinar that will reveal how U.S.-based suppliers are thriving in Mexico. This session will provide actionable insight into: • • •

Why a cost-competitive Mexico production footprint is essential for business growth Why Mexico needs more Tier 2 and Tier 3 North American suppliers Options for establishing a Mexico production footprint for manufacturers of all size

Webinar participants are able to submit questions live during the webinar.

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Exclusive Content Provider:

OESA EVENTS

OESA 2019 Warner Norcross + Judd Automotive Supplier Legal Hot Topics | June 13 The OESA 2019 Warner Norcross + Judd Automotive Supplier Legal Hot Topics will be held on June 13, 2019, at the MSU Management Education Center in Troy, Mich. This session will offer legal insight into trends impacting the supply base that supplier companies need to know.

Seasoned automotive supply chain attorneys from Warner Norcross + Judd (WNJ) will discuss: Best Practices for Addressing Troubled Suppliers and Customers Gordon Toering, Partner, Warner Norcross + Judd There are legal strategies available when dealing with financially troubled suppliers and customers, but the strategies are different. Learn how to identify and utilize legal tools to address financially distressed suppliers and customers.

Tooling Payment Resolution: How to Address Slow or Delayed Payment of Supplier Tooling Dennis Loughlin, Partner, Warner Norcross + Judd As the supply chain experiences elevated distress, slow or delayed payment of tooling is becoming more common. From quality disputes to disguised cash flow management methods, learn techniques to gain leverage and protect your company.

Dispute Resolution - How and When to Pick Your Battles: Business Resolution vs. Reserving Rights Under Protest vs. TRO - Michael Brady, Partner, Warner Norcross + Judd Suppliers frequently deal with supply chain challenges such as a stop-ship threats, price increase demands or plant closures. From a negotiated resolution, a payment under protect or a rush to the courthouse, learn ways to alleviate those challenges, protect your company and avoid a supply chain shut Exclusive Sponsor: down.

Tariff Update and Customer-OEM Reactions Homayune Ghaussi, Partner, Warner Norcross + Judd Tariffs have been in place on aluminum, steel, and Chinese products for more than a year now, requiring suppliers to navigate costs, exemptions and customer negotiations. Learn about the current status of these tariffs, lessons learned from suppliers working with customers and OEMS.

OESA 2019 AlixPartners Global Automotive Outlook Executive Briefing – Supplier Members Only | June 20 OESA invites supplier members to attend the OESA 2019 AlixPartners Global Automotive Outlook® Executive Briefing on June 20, 2019, at The Townsend Hotel, Birmingham, Mich. Based on AlixPartners’ indepth analysis of 150 global suppliers and 50 automakers, John Hoffecker, global vice chairman-operations, Mark Wakefield, global automotive & industrial practice co-lead, and Shiv Shivaraman, Americas automotive and industrial practice co-lead, AlixPartners LLP, will provide insight on key trends likely to impact the industry over the next ten years.

The 2019 report is the 24th edition of the AlixPartners study and includes analysis on North America, Europe, Japan/Korea and China. Hoffecker, Wakefield and Shivaraman will also discuss structural changes affecting the supply base and operational actions suppliers take to improve their competitive position.

This supplier-centric event also focuses on strategies for targeting investments in the most attractive opportunities and developing strong competitive positions in those markets.

Exclusive Sponsor:

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OESA EVENTS

OESA 2019 Strategic Insights Executive Briefing Series II | June 25 The OESA Strategic Insights Executive Briefing Series offers fresh perspectives and valuable insights on market demand and production forecast dynamics. Attendees will learn from leading industry experts on actionable intelligence to inform strategic planning frameworks.

The next Strategic Insights Briefing of 2019 will be held June 25, 2019, at the MSU Management Education Center in Troy, Mich.

Kevin Riddell, senior manager, powertrain forecasting, LMC Automotive, will share a detailed automotive powertrain outlook, provide deep insights or powertrain strategies for North America, and a debrief on global electrification trends. Riddell will expand on risks within the planning horizon that offer headwinds and new business opportunities for nimble organizations.

Jason Coffman, automotive consulting leader, Deloitte Consulting, LLP, and a panel of Deloitte subject matter experts including Bradd Craver, US automotive human capital partner, and Laurent Becher, manufacturing strategy & footprint optimization leader, will provide rich insights and detailed implications on the future of manufacturing as the industry transitions toward a mobility future. The discussion will highlight the impact of electrification technologies, and explore implications for the supply chain and talent dynamics. They will also discuss increased vehicle electrification and advances in autonomous mobility that will transform the manufacturing landscape of the future and unleash new competitive realities.

Series Sponsors: Remaining 2019 dates for the OESA Strategic Insights Executive Briefing Series are: • •

September 10, 2019 December 12, 2019

OESA 2019 Butzel Long Supplier Academy Series II | June 28 The automotive industry continues to grow and innovate at a rapid pace which may present challenges when it comes to protecting the best interests of the business. New types of agreements, customers, buyers and negotiation strategies have become daily topics of conversation.

To help seasoned supplier executives and those new to the industry gain a better understanding of various contractual agreements, OESA, in partnership with Butzel Long, will host a “Supplier Legal Academy Series” designed to provide a “back-to-basics” approach for supply chain management in the current landscape, while looking ahead toward uncharted territory.

The dates and focus for the OESA 2019 Butzel Long Supplier Legal Academy Series meetings will be as follows: • June 28, 2019

Dealing with Bad Products, Supplier Threats and Unprofitable Programs • July 26, 2019 Presenting Sponsor:

Protecting Trade Secrets, Who Owns Your Work, Rights to Information and

Tooling Fundamentals Supplier executives responsible for understanding, fulfilling and enforcing supply chain contracts should plan to attend these briefings.

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August 6-8, 2019 Grand Traverse Resort | Traverse City, Michigan, USA

CAR MBS 2019 will focus on the auto industry’s commitment to change, across the spectrum of technology, strategy, mobility, policy, and manufacturing issues.

This August, join us to connect with more than 1,000 stakeholders, representing automakers, suppliers, startups, media, government, and academia.

SPEAKERS INCLUDE: Michael F. Ableson Vice President, Electric Vehicle Charging & Infrastructure, General Motors

William Knapp Head of Urban Mobility Concepts Americas Region, Daimler Mobility Services

Stephanie Brinley Principal Automotive Analyst, IHS Markit

Alisyn Malek COO & Co-Founder, May Mobility

Michael Dunne CEO, ZoZo Go

Michael Mikula Chief Engineer, Advanced Manufacturing, Ford Motor Company

Reinhard Fischer Senior Vice President, Volkswagen Group Steve Gehring Vice President, Vehicle Safety and Connected Automation, Global Automakers David M. Johnson Vice President, Manufacturing Engineering, Nissan North America, Inc.

Rani Richardson Director, Light Weight Engineering, Dassault Systèmes David Uze CEO and Co-founder, Trillium Secure, Inc. Terri Von Lehmden Vice President, Human Resources, Toyota North America

For a full list of speakers and to register, visit www.cargroup.org/mbs

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Best Practices for Choosing and Retaining Mexican Manufacturing Management Prepared By: Doug Donahue Principal, Entrada Group Ph. 210-828-8300 E: ddonahue@entradagroup.com If your company is a manufacturer for the auto sector and you don’t yet have a Mexico production location, chances are someone in your company has Mexico on their radar in some way. If they don’t, rest assured that one of your customers does.

When you do finally pull the trigger on your own Mexico facility, selection and development of your Mexican management team should be one of your top priorities. To assist new-to-Mexico companies in optimizing the management that will be responsible for success or failure in Mexico, we’ve compiled an initial handful of recommendations, below.

Look Beyond Your Own Backyard As the auto sector continues to expand in Mexico, competition for talent has intensified, all across the country. Mexico’s talent base is growing quickly, but the supply still isn’t sufficient to keep up with explosive demand and higher-level skillset now required. Solving the shortage of skilled labor means knowing how to look in the right places.

“As manufacturing processes in Mexico become more sophisticated and technical, you will need a strategy for ongoing training and workforce development” Mexican labor has progressed significantly beyond the early years of basic assembly. This is because an ever-growing number of international manufacturers require more sophisticated processes to reduce operating costs and improve productivity.

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About Entrada Group

Entrada Group guides international manufacturers in establishing and running their own cost-competitive Mexico operations. Our manufacturing support platform manages all your general and administrative services, reducing cost and risk, and generating long-term growth.

Visit us: www.entradagroup.com

Mexican management teams are expected to possess knowledge of and experience with specialized management techniques such as continuous improvement, Lean manufacturing and Kaizen concepts. Finding experienced indirects at that level means casting a wider net during recruitment.

Jesus Mendoza, a Mexican HR expert and longtime Entrada collaborator puts it this way: “To find skilled knowledge workers, companies must both know where to look and be willing to search outside their area. Knowledge of the regions of Mexico and the types of experts in those areas requires the guidance of an experienced Mexico partner like Entrada. You’re looking for technical electronics staff? Turn to Guadalajara, which excels in talent with hardware experience: PCs, small electronics, cell phones. Monterrey, for example, offers an abundance of contract electronics manufacturers, with Nokia and its related ecosystem found there. You just need to know where to look and that comes from experience.”

Mendoza singles out electronics, in particular, because it is one of the most-explosive segments

GUEST COLUMN in Mexico as well as a focus area growing in importance within the auto sector, which is becoming more and more connected every day.

It’s also the fastest-growing industry at Entrada’s manufacturing campus in Zacatecas, accounting for a full one-fifth of the workforce of our clients.

Have A Development Strategy in Mind You likely won’t have the luxury of situating your production facility near the most-talented workers, especially technical staff. For one thing, you may not be able to afford to setup in the areas where the most-desired technology and knowledge workers prefer. And second, your location may be dictated by a need to be close to your customers or supply base.

That’s why it is essential, particularly as processes in Mexico become more sophisticated and technical, that you have a strategy for ongoing training and workforce development.

Entrada manages that need for our clients by working with a strategically developed network of partnerships with universities, technical training centers and municipal education clusters to train the regional workforce and ensure our clients have access to an adequate supply of technical direct labor.

Search Outside of Automotive Mexico’s workforce has become more skilled through their experience assembling other items related to the aerospace, consumer electronics devices and medical device industries. This is a positive development for auto manufacturers looking to staff out their first Mexico operation, as Mexican workers, both directs and indirects, have broader experience from diverse sectors that makes them more adaptable, capable and exposed to different processes.

Know Who You Are Recruiting (and Their Family too) As you work your way through the recruitment process, you’ll want to make every effort to really get to know the plant management team who you have given the substantial task of leading your facility. Here are just a few examples of the things you’ll want to find out as early as possible about candidates in the recruitment process: Have they worked with their current employer for a long time? If they have, they would forfeit a substantial severance package (a uniquely Mexican perk) should they move to your company. They may seek extra compensation or to be given the same seniority at your company to make up for what they will leave on the table. It’s best to know this earlier rather than later.

What is their family situation? Will their children need specialized academic, language or sports programs? What is the level of quality of the local schools? Will the spouse be happy with what the local community has to offer?

Consider Your Entire Package Perhaps more so than in the U.S., offering an overall competitive employer-value proposition in Mexico is essential. When formulating employee-retention strategies and programs, we stress to our clients that competitive wages alone won’t keep skilled workers around. They need to fully consider leadership, work environment, benefits, advancement potential, workplace amenities and all the elements comprising a full package.

For example: Would your company be able to offer your new Mexican management the same level of training, integration, input into corporate strategy and international advancement as they would for an American employee? This would be an appealing factor that would enhance future marketability.

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Winning With Talent In The Automotive Sector The automotive sector is experiencing unprecedented disruption from changing technologies, business models, competitors, and consumer buying behaviors. The impacts of these trends are already having sweeping effects on talent across the sector, placing an imperative for new: • Technical skillsets with a greater emphasis on the electrical engineering, systems engineering/integration, and software development backgrounds to enable the shift to autonomous and electrification.

• Leadership and strategic abilities to navigate increasingly uncertain market environments.

• Operating models with improved agility to outpace traditional (and non-traditional) competitors.

Due to these shifts, automotive companies are finding themselves vying for talent against new rivals – e.g., large high-tech companies and start-ups. This coincides with changing notions about work – where personal growth, attractive lifestyles, and meaningful purpose are core to what future generations expect from their careers.

Amid this backdrop, we partnered with OESA to survey and interview 70+ automotive suppliers globally – across a range of business sizes and technology areas.

What we found was only ~30 percent of these companies were confident they had the right capabilities to respond to these trends. Though to their credit, they realize the importance of talent – 100 percent of the surveyed companies stated that having the right talent is equal to or more important than access to capital.

Yet, overcoming these challenges will not be simple, as the companies we studied cited significant difficulties in: • Attracting talent – i.e., in finding compelling candidates across a range of skillsets (technical, leadership, strategic), creating company awareness (especially for smaller and less well-known companies), and offering competitive salaries and benefits (especially when competing against high-tech players) • Developing talent – i.e., in providing exciting career paths with equally compelling lifestyle opportunities Based on our research and experience in serving clients across sectors, we believe that solving these challenges is possible, but it will require organizations to fundamentally re-examine how they approach talent.

McKinsey & Company offers the following best practices as a way for automotive to be more effective in identifying, attracting, developing, and retaining the talent it will need to thrive in the decade ahead: • • • • • •

Create a “Group of 3” (G3) where the CEO, CFO, and CHRO collaborate closely to build the talent plan.

The talent plan needs to be integrally linked to the strategic and business plan, built with the same level of rigor, and continuously refreshed based on changing dynamics.

Reinvent and elevate the HR function to be a valued, strategic leader in the business.

Identify the critical two percent to focus on the subset of roles that create outsized value – regardless of what level they are at in the organization.

Transition to an agile organization to nimbly assemble small, cross-functional teams that work in short cycles to learn rapidly and quickly respond to shifting strategic priorities.

Leverage new digital and analytical tools across all elements of workforce planning and talent identification, selection, onboarding, learning, performance management, succession planning, and retention. This brings a data-backed way to build the talent plan and track its ongoing progress.

Build the workforce of the future informed by a deep understanding of the skills the organization has today and will need going forward to execute its strategy. This will require companies to examine which skills they will build through upskilling (e.g., through internal academies, university partnerships, on-the-job training/mentorship) and talent acquisition (hiring externally, including “acqui”-hiring, where companies are acquired primarily for the new skillsets they bring).

Exhibit 1 shows the distribution of scores from the survey across the above six practices, segmented by the top decile of performers, the bottom decile, and the average (across both automotive and a collection of other industries – e.g., pharmaceuticals and healthcare, high-tech, consumer packaged goods, industrials, and energy).

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GUEST COLUMN Overall, automotive performs in line with other industries, with high scores on “Creating a G3” and “Identifying the critical two percent” and low scores on “Reinventing and elevating the HR function”, and “Building the workforce of the future”.

Exhibit 1

The good news is there are automotive companies that are already applying these practices, and through our research we identified specific nuances that the top performing companies noted as being especially critical to improving how they approach talent (Exhibit 2).

Exhibit 2

If you are interested in reading more about the practices above, you can read “Talent Wins: The New Playbook for Putting People First” by Dominic Barton (McKinsey’s former Managing Director), Ram Charan, and Dennis Carey.

If you are interested in learning more about this study, please contact us: • Hans-Werner Kaas, Senior Partner, Hans-Werner_Kaas@McKinsey.com • Russell Hensley, Partner, Russell_Hensley@McKinsey.com • Reed Doucette, Associate Partner, Reed_Doucette@McKinsey.com • Moritz Rittstieg, Associate Partner, Moritz_Rittstieg@McKinsey.com OESA News - 2019 Second Quarter

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The Yellow Lights Are Blinking Fred Hubacker Managing Director Conway MacKenzie, Inc.

The automotive industry might be characterized a little like the Michigan weather; if you don’t like what you see today, hang around and tomorrow might be worse. Or better if you’re the optimistic type. The point is simple, we live, work and manage a business that is so utterly dynamic it’s almost unparalleled in complexity, challenges and in opportunities. Back in December/January we saw almost unprecedented swings in the equities markets, and general enthusiasm for automotive products and 2019 sales at the NAIAS. And we listened to and digested every auto industry expert forecaster for the year ahead with some forecasting a US light vehicle market at 17.2M, others at 16.5M, and many somewhere in between. Disaster? Certainly not, but clearly the years of steady growth not only here in the US but also in the world’s largest market, China are over. At least for the time being. The “smart” money on Wall Street was already telling us that with the OEM’s and major suppliers all losing significant market capitalization value in the 12 months dating back to early 2018. So, now we’re well into 2019 and the Yellow Lights are blinking, maybe even brighter than a few months ago.

The question becomes, what must you and your company do, now, to preserve value? As a member of the C-Suite team at your company, you need to be aggressively managing your current business, and your future book of business, to mitigate the effect of the blinking Yellow Lights. Yes, the lights might turn Green again because there’s enough favorable economic news and political pressures to make that happen. But, the lights might turn Red, however, and you need to be prepared. A few thought starters; • CAPEX – Capital and tooling are two of the most significant demands for cash in this business and many companies don’t manage either very well. It’s critical to recognize and thoroughly analyze the needs for CAPEX when you have existing unused capacity, are not taking full advantage of shift pattern opportunities, have not absolutely maximized output through productivity analyses, and, explored opportunities to acquire used equipment. Capital is very expensive and over spending and misspending can destroy a healthy balance sheet. It’s best managed with a rigorous analytical process that thoroughly examines the necessity for additional capital, the alternatives to additional capital and the financial returns of additional capital. Does an investment today with the appropriate WACC, yield a positive NPV in the future?

The tooling spending/recovery model in the automotive industry is archaic and needs to be changed.

Suppliers investing significant sums in tooling that will be owned and (eventually) paid for by their customers is a real threat to liquidity and the financial health of many suppliers. Consider negotiating milestone or progress payments on tooling rather than lump sum payment at PPAP. It’s not popular, but very necessary if you want to keep and maintain financial flexibility.

• Launch Readiness – The auto industry is awash in stories of companies that have fallen off the ledge because of poor product launches. With an unprecedented number of new vehicle launches scheduled in the next several years; mostly CUV/SUV’s, it is paramount that your company has an effective program management system that can ensure a successful launch at required quality, volumes and costs. This takes a lot more than just good planning. The OEM’s are now launching vehicles at greatly accelerated volume curves than ever previously thought possible. Your organization must have dedicated teams, and a stage gate launch process that fully understands the complexities and the difficulties of major issues that occur during product launches and how to solve those issues; quickly. The launch gate process should be in place with financial controls that are used to measure anticipated production launch at or above the forecasted margins in the original quote. The questions that must be addressed include; equipment capability, demonstrated process capability, workforce training, product complexity issues, raw materials/ component suppliers and logistics suppliers readiness, dunnage etc. Failure in any of these elements will result in an expensive lesson both in terms of financial results and in the reputation of your company 17 │ OESA News - 2019 Second Quarter

GUEST COLUMN • Understand Your Costs – This sounds basic but far too many suppliers do not have a good or accurate understanding of their true costs and, therefore, don’t have a real clue about profitability by part, much less by customer. It really starts with your cost estimating group and the costs you develop as part of the new business quoting process. Yes, quoting can be and always is an iterative process but when it’s completed your company needs to be confident that it will earn the targeted margins and return on invested capital that you need. And, not just at launch but in years ahead when the contractual annual price downs are factored in. That confidence is ONLY possible if you have a thorough understanding of your current costs and where you realistically expect them to be in the years ahead and, have a robust VA/VE discipline in place to engineer costs out that meet or exceed the LTA’s. No customer is going to have any sympathy for discussing a commercial issue relating to a quote mistake because your company didn’t know or couldn’t accurately understand their cost structure.

• Communicate – Nobody likes nasty surprises. Not your customers, suppliers, employees, and certainly not your lenders. Difficult issues that revolve around quality problems, delivery, commercial negotiations, and liquidity/covenant issues are very unpleasant conversations. Not having those conversations with your constituents is even more difficult and even more dangerous. Pick the timing to have those conversations, and be prepared to offer realistic solutions. Just don’t wait until the issue has a reached crisis level that sets off the alarms in the system. Then it’s far too late. If you need help with an issue, get that help and get it quickly because there are plenty of experts available to assist.

So, will the Yellow Lights be blinking all of 2019 or will they turn Red, or possibly Green again? No one can accurately say, but with the current state of the industry; undergoing massive technological changes while simultaneously and quickly shifting from passenger cars to light trucks, the supply base needs to respond with results. Results that satisfy their customers and their shareholders.

Fred Hubacker has over forty years of significant experience providing senior leadership, advisory and business development services for companies in the automotive industry. He has served in numerous executive roles throughout his tenure with Venture Companies Worldwide, New Venture Gear Inc., Textron Inc., Acustar, Inc., the Chrysler components manufacturing subsidiary, and Chrysler Corporation.

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WELCOME NEW MEMBERS A2Mac1 8393 Rawsonville Rd. Belleville MI 48111 (734) 9736468 www.a2mac1.com Member Representative: Rob Shalhoub, Manager, Sales & Marketing Alternate Representative: Christian Fusik, Business Development Powering benchmarking insight engines since 1998, A2Mac1 has built a robust reputation as the world’s most trusted provider of benchmarking information. As a medium-sized company with a global staff, it has been able to maintain a lean and nimble organizational structure. This arrangement allows A2Mac1 to empower staff, helping to meet their client’s critical needs in a more rapid manner, staying ahead of the industry’s ever-evolving technologies and trends.

BMTS Technology US Corporation 47003 Five Mile Rd. Plymouth, MI 48170 (734) 359-5124 www.bmts-technology.com/en/home/ Member Representative: Brian Vivio, Director Alternate Representative: Neal Karwande, Director BMTS Technology is a globally-active manufacturer of exhaust turbochargers. It develops and produces exhaust turbochargers for cars, light commercial vehicles and off-highway applications at plants in Europe, Asia and America. It stands for the highest demands on quality and efficiency and always focuses on making innovative products better in the pursuit of longevity and greater environmental awareness. These characteristics, in conjunction with reliability and fairness, have made BMTS a reliable and established partner to the automotive industry for many years. It responds with tailor-made solutions to customers' current and future requirements to ensure long-term success.

Chem-Pak 242 Corning Way Martinsburg, WV 25405 (304) 262-1880 www.chem-pak.com Member Representative: Mary-Kate Bishop, Director, Process Administrator & Customer Service Alternate Representative: Samantha Redman, Inside Sales & Marketing Specialist Founded in 1966, Chem-Pak is a leading provider of polymer flaw repair coatings for the plastics industry, and has helped molders in the automotive market improve efficiencies.

Manufacturing imperfections such as knit lines, flow lines and splay result in rejected parts, increased scrap rates and rework. Per-Fix flaw repair coatings can permanently restore the part to perfect condition in less than 60 seconds. Chem-Pak has expanded manufacturing and lab facilities, partnered with automotive OEMs like Toyota, and built a culture of technical expertise, regulatory insight, and uncompromising quality adherence.

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WELCOME NEW MEMBERS Lee Industrial Contracting 631 Cesar E. Chavez Ave. Pontiac, MI 48342 (248) 332-4646 www.leecontracting.com Member Representative: Josh Kane, Strategic Market Development Director Alternate Representative: Mike Hahn, Director of Sales Alternate Representative: Rachel Ahlgren, Marketing Specialist Lee Contracting is an employee-owned, single-source contractor. With a team of more than 400 experienced trades-people and 30 years in the industry, it is a one-stop-shop for industrial turn-key solutions. Its in-house manpower, state-of-the-art equipment and fully equipped shop, help job sites throughout the U.S run smoothly and efficiently.

Turn-key advantages include controlled project costs, accelerated timelines & minimal impact on your operations. 24/7, 365 availability offers the flexibility to have a schedule meet customers' needs. In-house trades include: Foundations, Rigging, Electrical, Mechanical, Fabrication, Machine Repair, Controls & Robotics, Building, Roof-Raising, Emergency Power and Industrial Storage. Lee Contracting is a trusted partner to hundreds of automotive suppliers and a two-time General Motors (GM) Supplier of the Year.

Macauto USA 2654 Elliott Drive Troy, MI 48083 (248) 556-5256 www.macauto-group.com Member Representative: John Luca, President North America Alternate Representative: Roman Kapitanec, Controller Macauto USA is a global supplier in automotive interiors, and offers highly-engineered solutions: Door Sunshades, Rear Lite Sunshades, Tonneau/ Compartment Security Covers, Barrier Nets, Sunroof Roller Blind Assemblies, Sunroof Roller Blind Fabric and Wind Deflectors. Macauto's customers recognize it as the leader of “innovation in comfort.”

Musashi North America, Inc. 2000 Town Center, Suite 1420 Southfield, MI 48075 (248) 386-1600 www.musashi.co.jp/en/ Member Representative: Edward van Amstel, President of North American Sales & Global Customer Director Alternate Representative: Alejandro Quintero, Vice President of North American Sales Musashi Seimitsu Industry Co., Ltd. is a solution-based global parts supplier for the automotive and powersports markets. Headquartered in Toyohashi, Japan, it operates 33 vertically-integrated manufacturing sites spread across Europe, North and South America, China, and South East Asia. Musashi specializes in the design, development and manufacturing of powertrain, steering linkage and suspension products.

With a focus on innovation, Musashi delivers a full portfolio of highly engineered technologies such as Differential Assemblies, Planetary Gear Assemblies, Transmission Gears and Assemblies, Reduction Gears for xEVs and Integrated Ball Joint Assemblies.

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WELCOME NEW MEMBERS OSRAM Continental USA, Inc. 175 Old Shackle Island Road Hendersonville TN 37075 (615) 826-0372 www.osram-continental.com Member Representative: Julian Dench, CEO Alternate Representative: Julie Noyes, Director, Communications & Marketing OSRAM Continental GmbH is a 50/50 joint venture of leading technology companies OSRAM and Continental. With its world headquarters near Munich, OSRAM Continental combines modern lighting technologies with electronics and software and offers a broad portfolio of intelligent, innovative lighting solutions for the global automotive industry.

OSRAM Continental employs approximately 1,500 people at 16 locations in nine countries.

The regional headquarters for the Americas is based in Hendersonville, Tennessee. It also operates an engineering, development and sales center in Troy, MI. Reyes Automotive Group 1 Lone Star Pass Bldg 28 San Antonio, TX 78264-3639 (310) 617-3845 www.reyesautomotivegroup.com Member Representative: Jason Reyes, President Reyes Automotive Group is a minority owned Joint Venture (or JV) that is comprised of two companies with a combined 120 years of manufacturing experience. The JV is headed

by Fernando Reyes who has over 20 years of manufacturing experience. International Automotive Components Inc. (IACNA), the minority partner, is currently the second largest injection molder in North America.

Reyes combines its strengths to make world class trim components for the next generation Toyota Tundra and Tacoma pickup trucks using injection molding, blow molding, and various assembly techniques in a just-in-time (JIT) environment.

u-blox America, Inc. 1902 Campus Commons Drive, Suite 310 Reston, VA 20191 USA (703) 429-3327 www.u-blox.com Member Representative: Suresh Ram, President Alternate Representative: Jim Bruewer, Vice President of Automotive u‑blox (SIX:UBXN) is a global provider of leading positioning and wireless communication technologies for the automotive, industrial, and consumer markets. Its solutions let people, vehicles, and machines determine their precise position and communicate wirelessly over cellular and short range networks. With a broad portfolio of chips, modules, and a growing ecosystem of product supporting data services, u‑blox is uniquely positioned to empower its customers to develop innovative solutions for the Internet of Things, quickly and cost‑effectively.

With headquarters in Thalwil, Switzerland, the company is globally present with offices in Europe, Asia, and the USA.

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COUNCIL FEATURE

Enterprise Leadership Council Addresses Unique Challenges In Supply Chain David Johnson Senior Director, Events and Member Programs 248.430.5968 │djohnson@oesa.org

OESA Executive Peer Group Councils are rated as one of the most valuable member benefits for automotive suppliers. OESA's councils are designed to bring together supplier executives with similar job functions and industry challenges. Quarterly council meetings provide a forum to address issues of common concern, share best practices, and hear from industry thought leaders and subject matter experts.

One of OESA's 15 councils is the Enterprise Leadership Council (ELC). The ELC is comprised of presidents and CEOs of automotive suppliers that generate less than $150 million in annual revenue. These organizations often share unique leadership and ownership structures, as well as their own unique challenges in the industry.

These similarities, and the role of suppliers of their size within the supply chain, are discussed at the quarterly meetings. Recent discussion topics include global expansion, product development process and raw materials.

Joshua Gadharf Member McDonald Hopkins

The next ELC meeting is June 13th, and will include an in-depth discussion on the state of distressed suppliers within the industry. Members will hear from subject matter experts Laura Marcero, Managing Director, Huron Consulting Group, Stephen Gross, Member, McDonald Hopkins, and Joshua Gadharf, Member, McDonald Hopkins.

Eligible supplier presidents and CEOs are welcome to attend a meeting. To determine eligibility requirements or to be a guest, contact David Johnson, senior director, Events and Member Services, at djohnson@oesa.org or 248.430.5968 2019 Meeting Dates: • June 13 • October 3 • December 12

Stephen Gross Member McDonald Hopkins

Learn more about the ELC and all other OESA Peer Group Councils at oesa.org/councils-and-committees.

Laura Marcero Managing Director Huron Consulting Group

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CALENDAR OF EVENTS OESA Board of Directors

UPCOMING TOWN HALLS*

Executive Committee

July 23

Toyota Town Hall Saline, MI

Chairman of the Board Ramzi Y. Hermiz President and CEO Shiloh Industries, Inc.

Aug 20

FCA Town Hall Novi, MI

Dec 4

Ford Town Hall Dearborn, MI

Immediate Past Chair Mike Mansuetti President Robert Bosch LLC

Officer Julie A. Fream President and CEO OESA Officer Bill Long President and CEO MEMA Directors Oscar R. Albin Executive President INA, Industria Nacional de Autopartes A.C. Paul Barnett President Principal Manufacturing

UPCOMING OESA COUNCIL MEETINGS* June 4

Chief Executive Officer Council Southfield, MI

June 13

Enterprise Leadership Council Southfield, MI

June 20

Chief Financial Officer Council Birmingham, MI

June 20

Sales Executive Council Birmingham, MI

June 27

Warrenty Management Council Livonia, MI

June 27

Tooling Council Southfield, MI

David C. Dauch Chairman and CEO American Axle & Manufacturing, Inc.

Paul Doyle CEO Coastal Automotive

Scott Ferriman President MAHLE Industries, Incorporated

Ronald Hall Jr. President and CEO Bridgewater Interiors, LLC Michael Haughey President North American Stamping Group, LLC Kenichiro "Ken" Ito Executive Director DENSO Corporation Chris Obey President, Automotive Flex Lon Offenbacher President and CEO Inteva Products Michael Robinet Managing Director IHS Markit Samir Salman CEO NA Region Continental Automotive Systems, Inc. Daniel Sandberg President and CEO Brembo North America, Inc. Armando Tamez CEO Nemak

Jacqui Dedo Co-Founder Aware Mobility, LLC Jon DeGaynor President and CEO Stoneridge

John Dunn President and CEO The Americas Plastic Omnium Auto Inergy Division

Denise Gray President LG Chem Michigan Inc. Tech Center

Vice Chair Françoise Colpron Group President Valeo North America Vice Chair Ken Hopkins President and CEO Neapco Holdings, LLC

OESA Board of Directors

Jim Teets President and CEO ADAC Automotive *Open to members and invited guests.

Katsutoshi Uno Chairman and CEO HIROTEC AMERICA, Inc.

For more information and to register for OESA events and council meetings, visit oesa.org, or call 248.952.6401.

23 │ OESA News - 2019 Second Quarter

Original Equipment Suppliers Association 25925 Telegraph Rd., Ste. 350 │Southfield, MI 48033-2553 248.952.6401 │oesa.org │info@oesa.org Connect with us on OESA News is provided by members of the OESA Communications Team.

April Buford Senior Director, Communications

Jeff Laskowski Senior Manager, Communications

Abby Napier Communications Specialist

248.430.5964 abuford@oesa.org

248.430.5951 jlaskowski@oesa.org

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